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Diageo puts its money on tequila for market share growth

Diageo has revealed during its Capital Markets Day that its tequila business will be key to its ambitious plans to achieve a 50% increase in total beverage alcohol market share value by 2030.

The company currently has a 4% share of the market, which it aims to grow to 6% by 2030. It says premiumisation and tequila are the two of the main factors that will lead that growth.

In FY21, Diageo’s US tequila sales grew 87%, more than twice the rate of the US tequila category growth, driving significant
market share gains.

“Tequila is a dynamic and exciting category which we expect to continue to grow rapidly,” said Chief Executive Ivan Menezes.

“We used our deep consumer insights to prepare for the category take off and built a powerful portfolio of brands which are rapidly gaining share. In 2015, we had just a 6% share of the global tequila category, since then we have tripled our market share, driving over 30% of total category growth. In the United States we are expecting the tequila category to deliver over 50% of incremental spirits growth in the market over the next five years, supported by the rapid premiumisation of this category. We are very excited about the future of our portfolio in this category.”

Chief Marketing Officer Cristina Diezhandino added: “Although the success of this category has surpassed even our own high
expectations, we identified and prepared for the opportunity well ahead of time.

“Our consumer insights tools gave us an early indication of the tequila trend – years ago, we saw tequila starting to take off in California. We were able to understand what was driving this trend and assess its sustainability.

“We saw consumers becoming more interested in wellbeing and therefore the ingredients of their drinks. We knew they viewed tequila as a ‘clean’ plant-based spirit made from agave. We saw it being talked about on social media as Keto and South Beach diet friendly.

“We also saw consumers trending towards more casual, day drinking and ‘with food’ occasions. We knew that the range of tequila variants enabled it to flex across those occasions and dayparts. It’s a versatile liquid that can be mixed, blended, sipped and stirred. Moreover, it pairs well with food – especially Mexican cuisine which one of the most popular in the US.

“Across all spirits categories we saw that consumers were increasingly interested in brands with provenance, heritage and craftsmanship. 50% of US drinkers say they choose authentic items and 1 in 5 will pay a price premium for it. Tequila is an authentic category that blends tradition and craft.”

President, North America and Global Supply, Debra Crew said Nielsen data shows the sales value of the tequila category growing at 39%, while total spirits are growing at 14%.

“We expect the tequila category to be number two in value after whiskey delivering over 50% of incremental growth for spirits,” she said.

Diageo’s investments in tequila

Diageo’s acceleration in tequila kicked off in FY15, when it took control of the remaining 50% of Don Julio, gaining full global ownership and management control of the brand and its supply assets. Don Julio 1942 is leading the fast-growing luxury tequila segment with 36% market share.

“We have launched two new extensions: Don Julio Primavera, a limited edition reposado, and Ultima Reserva, which uses extra anejo tequila from Don Julio’s final harvest,” Diezhandino said.

“To give you a sense of just how desirable these brands are, Primavera, which regularly retails for $US119 a bottle, has been selling on Drizly for over $US600 a bottle. Both variants are built on key consumers insights. Primavera is perfect for the
informal and mid-tempo occasions. Ultima Reserva delivers an authentic and credible brand experience.

“And, with their iconic luxury packaging, these bottles make beautiful and covetable personal gifts, which we know in these tumultuous times, is highly motivational for consumers.”

At the end of FY1, Diageo acquired Casamigos, the fastest growing superpremium tequila brand in the US, partnering with two of the founders, George Clooney and Randy Gerber.

“We also have exciting opportunities to scale De Leon and to develop Astral – our recent acquisition from Davos,” Diezhandino said.

“In the spirits category, the super-premium-and-above segments have been the fastest-growing price points for 10 years as consumers choose to drink better, not more.

“We expect growth in the luxury category to be sustained by long-term tailwinds of income growth and premiumisation.”

Diageo also added to its growing portfolio of agave spirits with Mezcal Unión, as part of its acquisition of Casa UM earlier this year.

Diageo reveals plans to grow its market share by 50%

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